Visionarios Magazine

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VISIONARIOS 1.0 CRUX

Directors Note

Dear All,

I am delighted to present to you VISIONARIOSthe 1st Annual Consulting Magazine launched by XLRI. The theme for

this inaugural edition is Roadmap for Sustaining Indias GrowthStory, given the fact that the Indian economy has

slowed down in the last two years.

India does have serious challenges to overcome. The annual GDP growth has slowed down in the last quarter, to4.4%, consumer price inflation is high, and the current-account and budget deficits last year were too large. One often

reads articles detailing about Indias poor infrastructure, excessive regulation, slow-growing manufacturing sector,

sub-optimal health and social development indicators and a growing workforce that lacks adequate education and

skills.

These institutional and systemic deficiencies must be addressed if the Indian economy has to be on a sustainable

growth trajectory whilst ensuring that all sections of the society benefit from the fruits of economic growth. However,

it is a bit worrying that many of the deficiencies have existed for decades despite the best efforts of government, non-

governmental and private sector institutions.

In part, Indias slowdown is reflective of the substantial fiscal and monetary stimulus that its policymakers, like those

in all major emerging markets, injected into its economy in the aftermath of the 2008 financial crisis. The resulting

growth spurt led to inflation, especially because the world did not slide into a second Great Depression, as was

originally feared. However, it must be admitted that the government could have acted more swiftly and concurrently

undertaken a slew of modest and ambitious reforms thereby precluding the general sense of despair prevailing

amongst the public at large.

What should industries, leaders and strategists do when faced with a long period of slow-down? How does a

downturn impact established and budding managers? What are the strategies that organizations should adopt in the

face of policy paralysis and still ensure profitability? Through this management conclave consisting of eminent

personalities from the corporate, government and academia we shall strive for possible answers to these crucial

challenges and determine how to a develop a Roadmap for Sustaining Indias Growth.

I hope that this endeavor is well received by the academia and the industry alike, and provides encouragement for

more attempts in this direction in the future.

E. Abraham, S.J. Ph.D

Director

XLRIXavier School of Management


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Editorial

If one does not know to which port one is sailing, no wind is favorable.

-Lucius Annaeus Seneca

The most essential element of strategy formulation is having a vision for the entity in question. It is being

able to see beyond the immediate pitfalls and challenges and put the long term objectives of inclusive

growth and sustainability.

India today stands at a peculiar crossroads, where on the one side its shining past decade beckons it to carry

forward the flaming torch of growth, on the other a gloomy looking future looms, should it not get its act

right. An adversity they say is the best time for course correction. But for that it is imperative to look within

and mark out the fallacies that we committed on the way and to take a long term and holistic view of the

best way forward.

With this intention of reflecting on the current situation and ideating towards possible solutions for the

same, CRUX has come up with the first edition of the XLRI Annual Consulting Magazine: VISIONARIOS. It is

an endeavor on our part to create a platform for enthusiasts across a wide spectrum to pour in their ideas

on this raging debate that engulfs the nation.

Through this magazine, we hope to be able to bridge the gap that we believe currently exists between

classroom study and the mechanics of reality; and continue to keep coming up with important and relevant

topics each year.

Happy reading!

TEAM CRUX


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Contents

ABOUT CRUX 1

INDIA -TOWARDS A SUSTAINABLE TOMORROW 2

SUBSIDIES IN INDIA: THE PATH AHEAD 6

ROLE OF INDIAS DEMOGRAPHIC DIVIDEND IN SUSTAINING INDIAS GROWTH 13

KEEPING IT SMART AND SIMPLE 19

MADE IN INDIA-IPAD: TURNING A DREAM INTO REALITY 21

NORTH- EAST INDIA: THE NEW FRONTIER FOR SUPPLY CHAIN MANAGEMENT 24


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About CRUXWith the spirit of Magis and a motto of ever greater-ever better, CRUXConsulting and Research

Undertaking @ XLRI is the exclusive committee for consulting on campus.

Our Vision: To promote XLRI as a premiere consulting destination

Our Objectives:

To promote and hone basic consulting skills at XLRI and within management student community at large.To offer consultancy and research services to interested startups, organizations and voluntary bodies;

leveraging upon XLRIs capable student base, access to knowledge resources and faculty expertise.

To partner with consultancy and research firms for on and off campus branding with a view of developinglong- term fruitful relations between XLRI and the world of consultancy.

Our Activities:

DRISHTIKONNational Level Paper Writing Competition that sees participation from topB-Schools across the country

Y NESHUUnique simulation challenge for XLRI students lasting a week (Senior +Junior batch - BM & HR, Foreign exchange students)

GNITIOInter B-School strategy game. An event which will test your analytical skills,logical acumen & mettle.

ORIONFlagship Case Competition

120 teams participated from top B-Schools

C SE LE GUECase study sessions conducted by professional consultants, senior students

and industry expertsSTR TEGIKONCRUX's flagship event in Ensemble, one of the biggest B-School fests ofIndia, which saw participation from 175 teams last year

CRUX DVISORY SERVICESBold new approach to promote industry-student interaction. Facilitatestudent teams working on live projects


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India -Towards a Sustainable TomorrowSaurav Kumar Das

Shaadab Bakir Zafar

ndias growth story over the last two decades

has been rather impressive owing to sweeping

structural reforms that have opened up the

economy and introduced competition into a

myriad of sectors that had been perpetually

plagued by public monopolies. However, the

pressure put on the various resources owing to

rapid economic growth coupled with the impact

of a weak global environment have been majorly

responsible for the stifled growth in the economy.With inflation creeping towards the 8% mark and

Index of Industrial

Production (IIP) down in

the dumps, it is but

obvious that the

resilience of the

Indian economy is

being questioned

by investors.

Unfortunately,lackadaisical

government policies and restrictive practices are

serving as deterrents for the economy to spring

into a growth trajectory. The people at the helm

of the affairs must adopt dynamic policies to

sustain the economic transformation required for

India to address its socio-economic challenges.

We would focus on a few roadblocks which can be

converted into actionable objectives while

charting out a roadmap for sustainable growth.Dynamic Reform Policies

Lets admit it; the nations growth at the dawn of

the current decade was severely dented by a

policy paralysis that gripped the government.

Since then the policymakers have done their bit to

salvage the scenario through a flurry of measures

to break the policy logjam including fuel price

reforms, opening up of multi-brand retail and the

current spate of financial reforms under one Mr.

Raghuram Rajan. But these sudden spurts ofrenewed impetus on reforms wont be of much

utility in taking the nation towards sustainable

growth.

It is high time that the government decided to

liberalize foreign investment in keys areas and

restructure the taxation system. Retail trade and

the agricultural sector have to be liberalized to a

great extent to further augment the massive

employment potential in these sectors. Expansion

of the services sector has been a key growth

driver for our economy. There is an urgent need

to liberalize the policies in the services sector and

more importantly bring about sweeping reforms.

Inclusive Growth

India has been since times immemorial a crucible

of socio-economic and cultural diversities. When

we talk of inclusive growth from a holistic

perspective it is a much greater challenge than

what it might seem at first sight. It calls for

persistent investment in both people andprocesses, starting from healthcare, education,

employment generation to other social welfare

initiatives with focus on their efficacy as well as

their efficiency. Even though the poverty in

absolute terms is declining marginally, the

economic divide is widening as we speak. We face

a certain dichotomy on the policy front as well

owing to the socio-economic inequalities between

a fast-evolving technologically savvy neo-urban /

semi-urban community and the neglected ruralcommunity, constituting a vast majority of our

demography. Cities evolved out of villages and

villages from small settlements. Coming from well

do to backgrounds, we enjoy all the vagaries of

city life; not just the roti, kapda aur makaan, but

even the privilege of good education, big-screen

entertainment, excellent transportation facilities,

malls and parks, airports and what not. Our reality

is all but a distant dream for people living in some

of the remotest villages in the most backward

areas of the country, untouched by technology.

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The government is hardly at the liberty to ignore

the communities that produce what we eat,

weave what we wear and build the structures

where we stay in. We should gracefully accept our

collective responsibility in uplifting them socially

and economically, to get them at par. Only then,can we proudly say that India, in its entirety is

moving towards economic growth.

There also exists a stark geographical variation in

the economic development. The success of the

Gujarat model of development has been largely

attributed to a good governance system. In fact

the sustained growth coupled with a favorable

investment environment ensured by the

government, has put Gujarat on the radar of both

domestic and foreign investors. And its not just

the Gujarat model, but the economic model

followed by quite a few other states which if

replicated across the nation would work wonders.

For instance, in Kerala there are nine parameters

based on which a family is classified as below

poverty line (BPL). Families which lack access to

four or more parameters, including families with

an illiterate adult member and a woman headed

household among others are classified as BPL.

However, the crux of the matter lies in the fact

that owing to the massive levels of heterogeneity

in the socio-economic stratum of each state, a

single model of development for all States would

fall flat. The policies developed ought to serve the

specific problems of each state, which require

tailor-made responses. The large tribal

populations of the north-eastern states and the

likes of Odisha, Jharkhand and Chhattisgarh pose

quite a complex challenge. Even though they are

sitting on a treasure of natural resources, amissing common ground between them, the

industry and policy makers, has led to internal

strife leaving them high and dry. Lack of job

opportunities, proper education, infrastructure,

primary healthcare and many other basic facilities

have allowed the Naxalities and the Maoists to

gain their allegiance in waging a proxy guerrilla

war against the state. This seemingly perpetual

war has cost the nation dearly in terms of lives of

people lost/ affected and the sheer financialburden of waging a civil war. Its high time that

the powers that be put a serious thought in

finding that common ground to initiate a fruitful

dialogue. Unless the Indians from the different

parts of India are not integrated into the social

identity of India, we would be hard-pressed to

achieve economic progress.

Education

The implementation of the Right to Free

Education Act has indeed proved to be a shot in

the arm for increasing classroom enrolment

manifold at both primary as well as secondary

level, but the question remains how effective is itwhen we consider the finer details. Three years

after it came into effect, a stocktaking report of

the implementation of the act across 15 UP

districts in July 2013 showed that only 27%

government primary schools fulfill RTE norms

related with appointment of teachers. As per the

report, the data which collected from 645 schools

reflected that 64% schools were deployed for

non-academic activities. The study further

revealed that 10% elementary schools were not

situated within prescribed area while 12% primary

schools were not suitable for enduring rough

weather. Besides, drinking water facility was not

available in 11% schools. The report also said that

77% government primary schools did not have

functional toilets for girls while only 19% had

functional toilet for boys.

Our concern does not end here. Even with respect

to higher education a lot needs to be done. The

education space is fast evolving with theblossoming of several new niche sectors including
http://en.wikipedia.org/wiki/Literacyhttp://en.wikipedia.org/wiki/Literacy


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The number of people affected by all

disasters in India has risen from an

average of 174 million a year between

1985 and 1994 to 254 million a year

between 1995 and 2004. It is

inevitable that economic development

will be affected. The trick is to have asustainable growth.

vocational training, finishing schools and e-

learning. We face the challenge of aligning the

higher education system with the evolving skill

requirements of our economy without

compromising on social inclusion. The education

policies should aim at grooming teachingexpertise in key fields, encourage critical thinking

through research orientation and enhance

communication skills on a broader level. This

requires effective evaluation and monitoring of

progress and enhanced levels of capital

investment.

Sustainability

The economic slowdown that we are witnessing

today is only partly cyclical. It has got more to dowith the emergence of energy, infrastructure,

human capital and institutional bottlenecks. A

return to strong, sustainable growth is an

overriding necessity to ensure the continued

progress in tackling poverty head-on and lifting

living standards more generally. When we talk of

sustainability what do we exactly mean? The

standard definition says, Sustainable practices

are those that meet our needs without

compromising on the ability of the futuregenerations to meet theirs.

The impacts of global warming include rise in

average sea level and ocean heat content,

decrease in snow cover and ice glaciers, as well as

extreme weather conditions including long dry

spells and unpredictable, heavy rainfall. These

changes result in drop in agricultural yield,

increased possibility of floods and droughts,

adverse effect on human health and loss of bio-

diversity.

The challenge of sustainability on the resources

front can be addressed through focus on three

key aspects: Policy, Education & Technology. Allthree are interlinked and conribute to the overall

goal of sustainable growth. Education helps to

overcome the barrier of lack of consumer

awareness. Increased awareness will affect

personal choices- lifestyle products, mode of

transport, even political candidates. We need a

paradigm shift from our archetypal kneejerk

reaction after the damage is done, to a more

proactive one. It is high time that such

conservation measures are implemented in

household and communities on a massive scale.

We might not realize but 90% of the energy used

by a standard electric filament bulb is wasted as

heat and only 10% does lighting. Even replacing

one bulb with CFL lights would save thousands of

rupees in electricity bill over its life time. We all

know that virtually every other household device

as an energy efficient substitute. We just dont

realize that the initial investment on such devices

would save us thousands of rupees in the long run

and more importantly save the future generations

a life of misery.

Rigid Bureaucracy & Corruption

Against all odds, irrespective of the market

scenario, corruption has been deeply entrenched

in the Indian bureaucracy since as long as one can

remember. The total money lost in corruption is

an astounding 17% of Indias GDP. We do have a

RTI Act to bring about a sense of accountability,

but it treats just the surface issues rather than theunderlying causes. Though a majority of

corruption takes place in state-run institutions, it

is slowly percolating to other sectors as well. One

of the fundamental reasons of corruption in

countries like India, Pakistan, Bangladesh, etc. is

the salary structure of the government

employees. It has been a silent observation that

competent & highly skilled people are in general

discouraged to join government sectors. This is

attributed to the mindset that firstly, thegovernment sectors dont value his skills as much


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as a corporate entity would and secondly his

growth opportunities are stifled by the

reservation system. So, the candidates entering in

public sectors are not competent enough and

even if they are, they arent remunerated well

enough, preferring nefarious shortcuts to earnmore money.

The strategy to tackle corruption in India would

have to be two pronged. Firstly draw the best

minds in the country to take charge of some of

the most important positions as policymakers and

implementers who really drive the growth story

on the ground. Secondly, to satiate the hunger for

more money in the bureaucracy by defining

performance metrics in line with the long term

growth strategies of the enterprises & then linking

pay to performance. This may not change the

scenario immediately nor will it completely make

the system corruption free. But it would be a shot

in the arm for the younger generation to take up

government jobs as their skills and services will be

valued and over a longer term the objective will

be growth and welfare. Over a period of time, we

would gain economic benefits to offset the bribe

money which is currently lost due to corruption.

In conclusion, we see a certain inexplicable

paradox in the emerging growth driver trends.The challenges India faces are more hard-hitting

owing to the size and population of the country,

catered to by antiquated infrastructure. The

responsibilities shouldered by the regulators, the

utilities and the policy makers are seemingly more

onerous. To project a sustainable growth model,

we must urgently address the issues of resource

constraints and climate change. Its not just India,

in the wake of the not so subtle ways in which

nature has reprimanded us to respect our

environment, the world at large is moving

towards environmentally sustainable channels of

growth. We have to collectively embrace growth

strategies that aim to turn the mutual trade-offs

between economic development, social justice

and environmental concerns into a synergistic

developmental apparatus.


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Subsidies in India: The Path AheadParidhi Jain

Pranav Primlani

Rahul Sapru

Rahul Seth

Abstract

The paper focuses on the role of subsidies in India, taking a stand in favour of targeted subsidies. We

examine the kinds of opposition mounted against subsidies as well as the history of these resistances.

Subsidies in 2 different sectors are then focused upon- agricultural and sector and petroleum sector- chosen

for their enormous fiscal impact on the Indian state and their substantive and psychological impact on its

polity. A conclusion is reached in favour of retention of subsidies, provided they are targeted and not across

the board.

subsidy is a form of financial or in kind

support extended to an economic sector

(or institution, business, or individual)

generally with the aim of promoting beneficial

economic and social outcomes.

Subsidies are designed to overcome deficiencies

in the market, support disadvantaged sections of

society, and positively distort activities such as

pushes towards renewable energy, recycling and

agricultural set-asides. Simply put they represent

an attempt by Governments to control the

behavior of individuals, businesses and larger

groups by offering or exacting economic

benefits/taxes.

The resistance to subsidies is of two kinds-

1. The Neoliberal/libertarian/monetarist

resistance All marginally differing ideologies are

concur on one basic fact that the states

interference in the lives of its citizens should belimited to national security, securing private

property & enforcing contracts. All other forms of

government intervention regulations, subsidies,

tariff barriers etc are detrimental to the efficient

functioning of the market. This outlook holds

currency in the major drivers of economic policy

in the world todaythe US Treasury, the IMF, the

World Bank and the WTO.

2. The Alternative Interventions resistance The

necessity of government regulation/intervention

is acknowledged but subsidies are considered the

wrong instrument for this intervention. This

school of thought has a great many proponents

among the Left. It is necessary, however, to take a

more nuanced approach with regard to this

school of thought. This is because there are

several prominent economists Jean Dreze(the

brain behind NREGA as well as the recent Food

Security Bill) and Amartya Sen, who maintain that

while subsidies are theoretically an inefficientmeans of fighting inequality, in the world as it

exists today, subsidies are an essential instrument

in achieving a modicum of distributional justice.

Our hypothesis is this: that for a developing

country like India, which ranks very low on the

HDI, targeted subsidies are essential for

preserving both the economy and the social fabric

of India. Our premise is that the former cannot be

sustained without the latter. We believe that a

large proportion of the subsidies that are

currently provided are not at all efficacious due to

a lack of or incorrect targeting or embezzlement.

Just because, however, that the mechanisms in

place in India for delivering these subsidies are far

from efficient, this does not imply that the very

notion of targeted subsidies is flawed.

We now propose to examine subsidies in the

Petroleum and Agriculture sectors.

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Petrolium Sector

The chorus to do away with subsidies has become

deafening in the past few years. The issue of the

alleged under-recoveries of the OMCs is raised

ad-nauseum in numerous World Bank and

Government of India reports. Before we examine

this issue, a short background to the pricing of

petroleum products in India might be helpful.

In 1977, still reeling from the shocks of the OPEC

oil crisis of 1973, the Indian government

instituted an Administered Price Mechanism

(APM). Under the APM, prices in the petroleum

sector are controlled at all four stages,

production, refining, distribution and marketing

on the cost-plus principle (compensating costs + a

mark-up).

The disadvantages of this mechanism in

particular, and with cost-plus pricing mechanismsin general were manifold-

1. Since companies recovered all their costs (and a

fixed profit) regardless of performance/

investment, the incentive to perform reduced

significantly.

2. As PSUs held monopoly over all stages of

production of petroleum products, investments

and outputs were centrally mandated. The entry

of private firms expedited the need to stimulate

investment by permitting more substantial

profits.

3. Cost-plus formula in private firms encourages

gold plating of the plant and artificially inflates

costs, leading to a drain on the taxpayer.Recognizing these and other lacunae,

Government of India, abandoned the APM in year

2002 and by year 2004, a new, partially de-

regulated mechanism was created in which the

subsidies provided for PDS Kerosene and

Domestic LPG would be shared between the

Government and the OMCs. Since the

government was determined to shield the Indian

consumer from the fluctuations in oil prices in the

International market, retail prices of 4

commodities petrol, diesel, kerosene and LPG

(Source : OECD/IEA, 2009)


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were fixed, allegedly at below cost. This led to

substantial under-recoveries, the burden of which

was shared by the government and the OMCs.

By FY 2009, the gross under-recoveries of the PSU

OMCs on the sale of subsidized Petrol, Diesel, PDSKerosene and Domestic LPG were pegged at .

1,032.9 Bn.

Despite shifting some of the burden to upstream

oil PSUs like ONGC & OIL under the Equitable

Burden Sharing Mechanism formulated in 2005,

the OMCs continued to bleed. To mitigate the rise

in the fiscal deficit, the Government resorted to

issuance of oil bonds in lieu of subsidies. Special

bonds amounting to . 5,904.0 mn (1.8% of GDP)

were issued to oil marketing companies andfertilizer companies during FY09 to cover their

under recoveries. However, these off-budget oil

bonds merely increased the government debt and

since these were mainly 5-7 year bonds, many of

them have been reaching their maturity, further

burdening the government.

Despite these and other measures, however, the

sharp surge in the global fuel prices along with the

weakening rupee had greatly increased the OMCs

losses by FY 2012, mainly because of the lack ofprice revision for the sensitive commodities. Also,

the cash subsidy to OMCs was dispensed after the

extent of under-recoveries was established; this

forced the oil companies to borrow in order to

meet their working capital requirements.

The issue of under-recoveries has been

challenged in an insightful paper by Dipankar

Dasgupta and Tushar Chaterjee. Their primary

contention is that oil refineries, being multi-

product firms in the classical sense, cannot

employ a straightforward cost plus mark-up

procedure for computing the prices of their final

products. Different quantities of petrol, diesel,

kerosene, liquefied petroleum gas (LPG), as well

as other final products are simultaneously

produced from a given volume of crude oil and it

is not obvious what the crude input content of

each product is.

The desired price for petroleum products iscomputed taking into account import-related

costs, which is unjustified since most of the final

products so priced are produced domestically. It is

therefore only the imported part of crude oil

(64.22% - See Table 1) to which these costs should

be added. This factor, therefore, artificially

increases the under-recoveries of the OMCs by

exaggerating their costs.

Given the relative weightage of import vs

domestic crude, the average price of a barrel of

the Indian mix of crude oil ought to be calculated

by attaching a weight of 64.22% to the import

price and 35.78% to the domestic price.

Dasgupta & Chaterjee also propose a pricing

model based on cross-subsidized pricing

mechanism for diesel, petrol, kerosene anddomestic LPG which would have relieved the

central government of its entire subsidy burden of

1,41,802 crore for FY 2011. In addition, a surplus

revenue of 35, 986 crore would be gained from

this sector.

For this reason, we believe that apart from the

issue of OMC under-recoveries being greatly

exaggerated due to a faulty costing mechanism,

the fiscal deficit issue can be tackled by a suitable

cross-subsidization scheme like the one suggested

by Dasgupta and Chaterjee. Removing the

petroleum subsidy will have a cascading effect on

the economy, increasing prices of all essential

commodities. It is not at all clear if this drastic

Table 1: Estimated Crude Oil Domestic Consumption


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step, which will harm the under-privileged more

than any other class, is at all necessary.

Agriculture

The advent of neoliberal economic policies on the

world stage was heralded between 1978-80 bythree major phenomena- Volckers steep hike in

interest rates, a Conservative political

wave(Reagan and Thatcher elected to lead the US

and Britain) and Chinas turn to market economics

under Deng Xiaoping. This ideology was

formalized in the Washington Consensus in 1989,

the three pillars of which are Liberalization,

Privatization and Deregulation. As part of this

agenda, the world economic troika

IMF/WTO/World Bank has been persuadingcountries to adopt these policies ever since. Part

of the liberalization of trade entails cutting

subsidies and lowering tariff barriers.

1. Balance of TradeThe policy of reducing trade barriers is not

enforced uniformly by WTO. The WTOs rules are

framed behind closed doors, with no democratic

oversight whatsoever. The Dispute Resolution

Body of the WTO is infamous for being

notoriously biased, controlled by the West. The

US consistently fails to act on its obligations to

lower domestic subsidies while the developing

world is held to strict account and penalized

harshly for any failure to lower export subsidies or

import tariffs. The Aggregate Measure of Support

(AMS) for this sector of Japan and the EU exceeds

30% of GDP from agricultural sector. In the realm

of agriculture for example, a global commodities

crisis has resulted from the forced reduction ofsubsidies to farmers in developing nations, who

are now expected to compete directly(sans

meaningful import tariffs) with heavily subsidized

EU and US Agri-business corporations.

The agricultural package of WTO on domestic

support and export subsidies provides forcomplex classification of support and subsidies for

agriculture, some of which are totally exempt

from reduction commitments. This classification

favours developed countries, particularly EEC, the

US, Canada and Japan, which are able to maintain

very high level of support for agriculture in the

exempt category.

A further reduction in agricultural subsidies in

India would therefore be disastrous for the Indian

Economy, making us uncompetitive in globaltrade.

2. Domestic ChaosDr Vandana Shiva has convincingly exploded the

myth of the Green Revolution, which increased

yields of certain crops at the expense of

decreasing overall productivity of farms and

increased reliance on High Yielding Varieties of

crops and fertilizers, thus destroying the essence

of agriculture in India the self-perpetuation ofthe crop. Farmers are forced to buy seeds from

Western corporations for each new sowing,

ruining the sustainability of agriculture, not to

mention the destruction of soils and the

groundwater by excessive use of fertilizers. This

has resulted in an explosion of farmer debt,

causing farmer suicides to skyrocket (for example

in Vidharbha, Maharashtra). By further lowering

subsidies to Indian farmers, we risk destroying the

little self-reliance they possess and push them

further into the clutches of Monsanto and its ilk.

The arguments above might seem to indicate that

subsidies and liberalization are mutually

incompatible. It is however interesting to note

that liberalization in Indian Agricultural sector was

initially effected through subsidies. The Indian

government subsidized the purchase of HYV seeds

and fertilizers by farmers, incentivizing the shift

from self-renewable agriculture (based on

internal inputs) to a dependent form (for whichexternal inputs and therefore credits are


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necessary). It is this sort of pseudo-subsidy, in

reality a hand-out to EU/US Agri-business that is

running the agricultural sector.

The Minimum Support Price regime is the

predominant form of subsidy provided to Indianagriculture. It is instructive to examine how this

came about. Norman Borlaugs semi-dwarf HYV

variety of wheat created an explosion of interest

from Agri-Business in the US. The World Bank,

along with the Rockerfeller and the Ford

Foundations took up the mantle of the evangelists

of the new religion of GM crops. The setting up of

various centres International Maize and Wheat

Improvement Centre (CIMMYT) in Mexico and the

International Rice Research Institute (IRRI).

The Dean of one such organization - the Indian

Agricultural Research Institute, Mr MS

Swaminathan, is regarded as the father of Indias

Green Revolution for his tireless work in

spreading the gospel of GM. His intentions were

undoubtedly noble and, in the initial years, the

Green Revolution seemed to be progressing quite

well. The yields of Rice and Wheat in particular

increased exponentially and India became self-

sufficient in terms of these food grains by the1980s. This increase, however, was more due to

the shift in area under cultivation from pulses,

oilseeds and other crops to rice and wheat. As

Ramesh Chand explains, This has created serious

imbalances in demand and supply of several

agricultural commodities in the country. On one

hand, the country is holding more than one-

fourth of the annual production of rice and wheat

in public stock, and on the other every fifth Indian

is underfed even by the standard of minimumcalorie requirement for a healthy and active life.

Similarly, the country has been facing large

shortages of pulses and edible oils and has now to

meet about one-tenth of demand for pulses and

close to half of the demand for edible oil from

imports.

To address this issue the commission on

agricultural costs and prices increased MSP on

pulses and oilseeds. However, the tragic fact is

that regardless of how high the MSPs on thesecrops is set, the government has deliberately

shied away from implementing the MSP on any

product properly except rice and wheat. Another

problem is prices. There was no increase in per

capita cereal production between 1990-91 and

2000-01; the increase in stocks resulted entirely

from decline in per capita cereal consumptioncaused by the steep rise in real prices of cereals in

this period.

Besides these, other problems with the MSP

abound with using the cost of production as a

basis for MSPs. As noted by Chand, Inefficiency

gets built into production and farmers do not

have to bother if growing a particular crop on land

unsuitable for its cultivation would raise cost of

production.

Regardless of demand, regardless of yield,

farmers blindly began to grow rice and wheat to

the exclusion of other crops. Naturally Indias

total production of these two food grains

multiplied and this was hailed as a miracle. No

matter the destruction of soils by shifting from

soil-replenishing polycultures to soil-exhausting

monocultures, no matter the devastation of soils

due to excessive use of fertilizers and the

denudation of the water table due to a neglect of

local irrigation as opposed to large canals and

dams.

Apart from rice and wheat, subsidies also

perniciously distort utilization of harvests. In

Maharashtra, the government is offering

subsidies for liquor production from food grains.As Sachin Tiwale opines, This policy will turn


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Jowar into a cash crop and divert huge quantities

of food grains to alcohol production, creating

scarcity and causing food inflation.(Tiwale 19)

The big beneficiaries of this so-called subsidy are

the distillery owners, who happen to be owned by

the kith and kin of powerful politicians.

Based on the fifth report of the National

Commission for Farmers, which highlighted some

of the aspects of the agrarian crisis gripping India

today, the government is taking a variety of

measures to counter these trends. These

measures, however, seem regressive rather than

helpful. The Public Private Partnership initiatives

aimed at creating Farmer Producer Companies

(FPCs) have been roundly criticized for vesting all

the control in the hands of corporations while

concentrating all the risks on farmers.

It might surprise the reader to know that we still

do not advocate a roll-back of agricultural

subsidies or an end to the MSP. We argue for a

targeted subsidy, which will incentivize farmers to

improve their lands with a minimal amount of

reliance on external agents but by relying on the

materials they have on hand.

Other options like in-kind subsidies (like therecent National Food Security Bill) as well as the

UID-based Direct Cash Transfer mechanisms

might help deliver subsidies in a far more efficient

manner. The former extends the Targeted PDS

system to nearly two thirds of the Indian

population a truly ambitious plan which, even if

moderately successful would help mitigate rural

malnutrition and starvation as well as increase the

utilization of the food grains purchased by the

government under the MSP. Critics level thecharge of fiscal irresponsibility against the

government for proposing so ambitious a scheme.

There have been wild speculations about just how

expensive this scheme will be with several pundits

like Ashok Gulati, the Chairperson of the

Commission of Agriculture Costs and Prices

(CACP), estimating the cost to be as high as . 6

lakh crores over the next three years. Dipa Sinha

points out that Gulati inflates the cost estimate by

including the investment in agriculture that willbe needed to stabilize production, the investment

that would be needed in storage and the

investment that would be needed in

transportation through railways. How all these

costs can be solely attributed to the National

Food Security Ordinance (NFSO) is a mystery. The

current food subsidy bill is around . 90,000crores. Sinha estimates that with an average

subsidy of . 20 per kg; the food bill will cost

about . 1,24,000 crores, around 1.2% of the GDP,

far below the 3% projected by the media. She also

points out that the percentage of households

accessing food grains from the PDS has gone up

from 28% in 2004-05 to 39% in 2009-10 and 44%

by 2011-12 despite the expenditure remaining

constant at less than 1% of GDP. This is because

the efficiency of the PDS has been steadilyimproving as the leaks in the PDS get plugged.

New schemes like the UID will lead to an even

greater efficiency for the NFSO.

There are several shortcomings in the NFSO as it

stands its piece-meal nature, the limited

provisions for women and children and the

centralization of the scheme being most

important among them. However, it is a step in

the right direction since it will optimize the

existing subsidy provided to the farmers as well as

extend the PDS-based subsidy to the consumer. It

is only by improving the system of subsidy that

exists in our country that we can progress in this

liberalized world.

Conclusion

From our analyses of both the petroleum as well

as the agricultural sectors, we see that the

complete rollback of all subsidies would be

disastrous for the economically weaker sectionsof society. It is unrealistic to expect the present

inefficient system to continue without correction.

We strongly advocate, therefore, a turn to

targeted subsidies focused on cross-subsidized

pricing across all four sensitive petroleum

products and, in the agricultural sector targeted

towards agricultural measures that enhance the

long-term sustainability of soils and other

agricultural resources.


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References

Chand Ramesh & Philip Linu. Subsidies and

Support in Agriculture Economic and Political

Weekly August 11, 2001.

Dasgupta Dipankar & Chaterjee Tushar.Petroleum Pricing Policy A Viable Alternative

Economic & Political Weekly. Vol xlvii no 46.

International Energy Agency . Petroleum Prices,

Taxation And Subsidies In India. June 2009.

Khor Martin. The Commodities Crisis and the

Global Trade in Agriculture. Third World Network

Peet Richard -Unholy Trinity The IMF,World Bank

and WTO. Zed Books

Shiva Vandana. The Violence of the Green

Revolution. Third World Network.

Singh Sukhpal. New Markets for Smallholders in

India. Economic and Political Weekly . Vol - XLVII

No. 52, December 29, 2012

Sinha Deepa. National Food Security Ordinance:

Anything But Expensive. Economic and Political

Weekly. Vol - XLVIII No. 30, July 27, 2013

Tiwale Sachin. Foodgrain vs Liquor: Maharashtra

under Crisis Economic and Political Weekly. May29, 2010 vol xlv no 22

http://www.business-

standard.com/article/specials/administered-

price-mechanism-in-oil-sector-bane-or-boon-

197052001002_1.html

https://www.dnb.co.in/IndiasEnergySector2012/

OilPrice.asp

http://www.frontline.in/cover-story/it-excludes-

farmers/article4888083.ecehttp://www.ncap.res.in/contract_%20farming/Co

ntents.htm


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Role of Indias Demographic Dividend in Sustaining Indias GrowthNeha Srivastava

Kiran Banshiwal

Priyalata Patra

Pallavi Bhandari

emographic change in India is opening up

new economic opportunities. As in many

countries, declining infant and child

mortality helped to spark lower fertility,

effectively resulting in a temporary baby boom. As

this cohort moves into working ages, India finds

itself with a potentially higher share of workers as

compared with dependents. If working-age

people can be productively employed, Indiaseconomic growth stands to accelerate.

Theoretical and empirical literature on the effect

of demographics on labour supply, savings, and

economic growth underpins this effort to

understand and forecast economic growth in

India. Policy choices can potentiate Indias

realization of economic benefits stemming from

demographic change. Failure to take advantage of

the opportunities inherent in demographic

change can lead to economic stagnation.

(Source: United Nations, 2009)

According to the Census 2011, the Indian

population stands at 1.2 billion with people in the

age group of 15-59 years as 729 million which isroughly 60% of the whole population. With such a

large demographic dividend several questions

arise as to whether India will be able to utilise this

asset or not and the only way of answering this

question positively is if this population is skilled,

educated and finds productive employment.

Without proper skill building this potential

working population instead of being economically

productive will be an economic burden on the

nation. So far the governments attempts at skill

building havent been as fruitful as expected. For

example the NREGA

One of the ways of enhancing skills and

harnessing the potential of this population is

through education.

Census 2011

Based on the census data we can see that

although the literacy rate has gone up over the

years from 64.8 % in 2001 to 74 % in 2011 there

still exists a lot of scope for improvement

especially in certain states like Bihar where the

factor is as low as 63 %.

D


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Unless the government acts up to provide better

education facilities and not just primary education

but all improved quality higher education that

makes the youth employable the potential

working population cannot be turned to a capable

working population.

For implementing these education facilities apart

from the infrastructure one major concern is

teachers. The teacher-pupil ratio in India is 38

which compared to other countries like US with

13.8, China with 17.7 is very high. (Indian data

from Indiastat.com, report by WHO published in

2012 for US China data)

This factor becomes worse when we move on to

institutes of higher education where there is anacute shortage of good teachers. With an

increasing population to support in terms of

education the government needs to address this

situation by coming up with innovative solutions

like e-learning which will help in reaching the

students in even the remotest part of the country

providing quality education.

Another issue that needs to be addressed is that

of job creation. With an economic slowdown in

the recent years and an increase in the number ofpotential working individuals there has been an

increase in the percentage of unemployment.

This will further reduce the benefit India has in

terms of its economically productive youth as

compared to China because the state cannot

provide enough jobs for this population. A means

to tackle this problem is through grater

investment in infrastructure and energy which

being labour intensive would absorb the large

proportion of unskilled and unemployed labour.

Also, use of technology to build innovative

methods to increase the productivity in

agriculture which can reduce the migrant labour

force which leads to unemployment. Apart from

this investment in strong logistics and storage

infrastructure will help in reducing wastage of

agriculture produce. This will encourage

individuals to work in agriculture as it will be more

profitable and avoid working in unorganised

sector.

There are currently 40 million people employed in

the unorganised sector. Those who work in the

unemployed sector typically have few skills and

consequently, get very poorly paid. Most of them

hail from relatively poor states like Uttar Pradesh,

Bihar and Rajasthan.

Only when proper infrastructure is laid within the

country will it lead to job creation and in turn

employ skilled and unskilled labour force.

Reference:http://www.moneycontrol.com/news/international-

markets/mecklai-graph-kiwis-jobless-rate-zooms-to-135-year-

high_780485.html

Also, when it comes to education it is not just the

primary education which is sufficient but highereducation which is important for making an

individual employable in high-end services such as

information technology, software development

and finance

N Chandrashekharan, chairman and managing

director of Tata Consultancy Services, and RS

Pawar, chairman of NIIT, a technology education

service provider, noted that 400,000 teachers

would be required in the coming decade to train

the next generation. Since the government cannotcreate better working opportunities for teachers

and awareness in terms of value of this profession

there may not be a great scope of increase in the

number of good teachers or educationists. The

only innovative method or solution to this crisis

would be e-learning which would actually enable

better learning opportunities for children in the

remotest location of the country. The growth in

telecom and broadband internet will help in

achieving this target. Clearly, the fact that Indiawill soon be home to one of the worlds youngest


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populations in future can become a tremendous

asset, but only if our policy makers start planning

for it today.

Another argument that jobs can be created

largely by skilling people, and sufficient capital willflow, is presumptive. Even if capital were to flow,

the absorptive capacity within a time frame is

challenging. The jobs-to-GDP ratio is about 50 %

for the service sector, and about 70 % for non-

service industries. As such, the service industry is

over represented in its share of the GDP, and does

not have any more head room to be a bigger GDP

contributor. Hence, it has limited scope to

contribute a good share of job opportunities.

The idea of skilling people will not take off

because enrolment for skilling will not happenwithout a line of sight for jobs. The development

of rail road, aerospace, health care, telecom and

infrastructure industries, globally, was initiated

with non-formal skilled labour. The industrial

revolution and the IT revolution was birthed by

gifted inventors invested into by enterprising

Figure 2: Demographic Profile (2010) Figure 2:Demographic Profile (2050)

Reference:http://www.ifmr.co.in/blog/category/hou

sehold-research/page/2/


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capitalists and set into motion by hordes of non-

formal labour.

According to the given figures, Younger people,

of course, tend to be more geographically mobile,

flexible in terms of occupation and creative. Butthese advantages only translate into greater

productivity and economic growth if these

workers have the right education and training as

well as job opportunities.

While many formal studies have been prepared to

assess the growth and employment potential in

India' formal private sector, less attention has

been given to the conditions and strategies to

promote rapid expansion and job creation in the

rural and informal sectors.

There is enormous scope for raising the

productivity of Indian agriculture, doubling crop

yields and farm incomes, and generating

significant growth in demand for farm labour.

Rising rural incomes consequent to higher

productivity will unleash a multiplier effect,

increasing demand for farm and non-farm

products and services, thereby stimulating rapid

growth of employment opportunities in othersectors.

India labour force suffers from a severe shortage

of employable skills at all levels so the intensive

development of vocational skills will act as a

powerful stimulus for employment and self-

employment generation. In addition to Farm

Schools to impart advanced skills in production

agriculture, government can contribute in

establishing a network of government-certified,

rural vocational institutes providing training andcertification in hundreds of vocational skills not

covered by the ITIs. In order to offset the shortage

of qualified trainers and the costs of replicating

institutions throughout the country, they can

focus on creation of a national network of 'Job

Shops' linked to the Rural Information Centres

and offering televised multimedia training

programmes and computerized vocational

training programmes. So, these educational

institutions must be created keeping in mind the

kinds of skills that are required on job and what

will enhance an individuals productivity.

Although government has taken action in this

direction and included in the eleventh five year

plan the creation of a comprehensive NationalSkill Development Mission and as a result a

Coordinated action on Skill Development with

three- tier institutional structure was created in

early 2008 with a vision to create 500 million

skilled people by 2022 through skill systems. But

what needs to be observed is whether the

government is successful in its endeavor and

achieves this target. Only then will Indias

Demographic dividend be an asset instead of a

liability.

Problems faced and how to tackle them

During the course of the demographic dividend

there are four mechanisms through which the

benefits are delivered. The first is the increased

labour supply. The second mechanism is the

increase in savings. The third mechanism is

human capital. Decreased fertility rates results in

healthier women and fewer economic pressures

at home, leading to better health and educational

facility per child. The fourth mechanism forgrowth is the increasing domestic demand

brought about by the increasing GDP per capita

and the decreasing dependency ratio.

1. Productive jobs are vital for growth. More than

half our population depends on agriculture, so the

number of people dependent on agriculture will

have to shrink if per capita incomes in agriculture

are to go up substantially. While industry is


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creating jobs, but many such jobs are of low

productivity offering low incomes with little

protection, and no benefits. So India's challenge is

to create the conditions for faster growth of

productive jobs apart from agriculture, especially

in organized manufacturing and in services sector,even while improving productivity in agriculture.

2. Urbanization and health

India, like other countries in the world is

becoming more urbanized: the fraction of people

living in urban areas grew from 18% in 1960 to

30% in 2008 (World Bank 2010). During this

period, it has been confronting a surge in chronic

diseases accounting for 53% of all deaths in

India in 2005

There are huge other benefits also that may

promote economic growth. In general work

opportunities are plentiful, fertility rates are

lower so more women enter the labour force,

industries can capture the benefits of economies

of scale, enterprises can readily learn from eachother, and transportation of people and goods is

easier than in rural areas. Even in healthcare,

greater availability of healthcare, combined with

lower fertility rates. Over all increased

urbanization may offer some advantages that can

help propel economic growth.

3. Capturing Indias economic potential

India has several areas to improve the first being

to make wider and deeper investments in health.India has considerable potential to promote

higher income concentrating more on health care.

India has taken a significant step in this direction

by establishing the Public Health Foundation of

India and the National Rural Health Mission,

which intend to fill Indias need for a wide range

of further investments in the promotion andprotection of health, including the training and

wide deployment of medical and public health

professionals who focus on prevention and care.

Indias second great demographic opportunity

involves the acceleration of fertility decline. In

general, there are three main approaches of

promoting this.

3.1 The expansion of family planning services.

Currently, approximately 13% of Indianwomen (10% in urban areas and nearly 15%

in rural areas) report unmet need for

contraception, meaning that many currently

married women who desire to postpone

childbearing are not using contraception.

Satisfying this unmet need for contraception

will help achieving the goal of bringing downTFR from its current level of 2.7 to 2.1.

3.2 Lowering fertility can be achieved

promoting infant and child survival. Vaccines

against childhood disease are one way to

realize an improvement in child survival.

This approach will include wide coverage of

established and inexpensive vaccinations

thereby addressing several leading causes of

child death in India. It will make vaccinated

children more productive through betterattendance in school and therefore well


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educated, higher-earning adults. India is

taking initiatives to increase vaccination

coverage; its coverage rates are currently

well below world averages. DTP3

vaccination coverage rate for India was 66%

in 2008, nearly 20 percentage points lowerthan for the rest of the world (WHO 2010).

3.3 Girls education can serve both development

and promoting fertility decline. Educated

mothers tend to have fewer children it also

empowers women to express their views on

lifestyle and fertility decisions. Having fewer

children allows families to invest more in the

health. And being educated they are also able to

contribute to nations progress.

Seizing the demographic dividend:

Questions we need to address

IS LARGE YOUTH POPULATION A BOON FOR

INDIAS SUSTAINABLE GROWTH?

No doubt large youth populations have led to an

increase in productivity but in terms of

economic benefit distribution, smooth running

of policies and schemes and better job

availabilities, India needs to focus on reducingthe birth rates along with death rates. There are

certain measures we need to take so that

population is within control and we can seize

our demographic dividend equitably.

Prevent the demographic dividend form

turning into a curse

India has developed a lot as far as the

entrepreneurial culture is concerned and this is

one of the most novel ways of creating

sustainable growth in the country. On one hand

it would provide more number of jobs so that

employment levels rise and thereby increasing

the productivity per person. While on the other

hand, it leads to generation of resources for the

country and thereby leading to more growth.

Large companies have been steadily losing jobs

while most of the job opportunities are being

provided by start-ups. Similarly more and more

educational innovations, better opportunities to

students and wide availability of choices in

subjects also help in developing this culture.

A survey was undertaken in IIM Indore, wherein

it was found out that almost 30% of the students

think that they have decided to become anentrepreneur during their course of MBA study

while amongst the pass outs, it was found almost

19% students, decided to go for

entrepreneurship after the completion of course.

This conversion ratio needs to be increased

further, if we aim to achieve growth sustainably.

India needs to leverage the diversity of its

population, the growing number of skilled

manpower and good geographical reach in order

to develop sustainably. In the course ofdevelopment it also needs to focus on proper

allocation of resources, develop means of energy

that is sustainable, reduce environmental impact

of various industrial activities and promote

better infrastructural facilities for investments to

grow within the country and also attract more of

them in future.


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Keeping it smart and simple

Navigating Chaos through Focus and Simplification

Aditi Khanna

hen Ratan Tata took over the reigns ofthe Tata group from the charismatic

JRD Tata, the conglomerate was seen

to be suffering from unstructured growth that

gave the group a bagful of businesses. From

trucks, steel and cement to drugs, lipsticks and

computers, the Tatas make them all. For instance,

the group has three companies making cement -

giant ACC. Tata Chemicals and Tisco..two

pharmaceuticals companies Merind and Tata

Pharma - while three other group companies,

Rallis, Voltas and Lakme, have their own

pharmaceuticals divisions .This also happened to

be a time of unprecedented turmoil in the Indian

economy, which was going through its first major

economic crisis since independence. This meant

sweeping changes in the policy climate, notably

the implementation of the LPG policies- that

exposed Indian industries to foreign competition

and dismantling of the infamous web of the

License raj. Amid this situation, Ratan Tata

prioritized restructuring of the conglomerate, to

retain only the top performers and get rid of the

rest. At Tatas, we believe that if we are not

among the top three in an industry, we should

look seriously at what it would take to become

one of the top three players.. or think about

exiting the industry.

The result was the sale of Tata Oil Mills, Lakme

and Merind brands, streamlined operations of

Voltas, sold stake in Idea cellular and exit from thecement business over the next decade, while the

group continued to consolidate and significantlyexpand in chosen areas. The fruits are there for all

to see. The lesson derived is highly applicable in

todays economic climate. At a time when

uncertainty of business climate has become the

norm rather than an exception and the horizon

for planning forward has been radically reduced,

more and more firms are realizing the virtues of

making larger bets on a more focused group of

products and services. Eliminating complexities as

far as possible from both offerings and processes

makes sense in such a scenario as complexities

in terms of the breadth of spectrumadd to costs

in more ways than one, and take away economies

that could have been realized from scale, while

not necessarily adding to profits, as only some

customer segments tend to be profitably as a rule.

Bain and Co. in a June 2013 survey outlines two

kinds of complexities that have arisen in the

consumer goods companies: above-the-skin and

below-the-skin. Above-the-skin complexity is theproliferation of brands, products and SKUs thats

apparent to shoppers on the store shelf. Below-

the-skin complexity is the abundance of product

features and specificationsvariations and

nuances in recipes, ingredients, packaging

materials and the likethat are not necessarily

discernible to shoppers. In a bid to serve as many

customer segments as possible during the benign

economic climate of the early 2000s, firms tended

to have beefed up their product portfolios andincurred a high mass of both kinds of

W

As uncertainty becomes a norm rather than exception, firms

need to keep it simple and focus their core competency -

now more than ever.


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complexities. While their costs tended to be

camouflaged back then, they are now more

glowering than ever.

Points out Sanjay Khosla, President of Krafts

Developing Markets Business, who wasresponsible for the sharp turnaround of the

segment from an anemic one to a robust

contributor to growth, To improve the quality of

growth, business leaders need to cut back on

marginal products, brands, and markets so that

they have a better chance of winning in their

areas of strength..Focus is a powerful engine for

growthdoing a few things and doing them well.

Seemingly mature businesses can be reenergized

by making fewer but larger bets, and by focusing

relentlessly on executing a simple but powerful

vision. And this strategy seems to have worked.

Today, Developing Markets is a $13.6 billion

business for Kraft foods. Revenues from organic

growth have increased nearly 13 percent and

operating income grew an average of more than

34 percent per year from 2006 through 2010. The

key lay in slicing off the marginal and focusing on

the core brands for the company.

Focus as a strategy is applicable across domains

and verticals. It could pertain to corporate

strategy deciding which businesses to retain or

exit from; to the business unit level deciding

what core offerings and product lines to pursue;

at the product line levelwhat variations to keepand which ones to withdraw; and also at the end-

customer marketing levelthe positioning of the

product and its tailoring relevant to socio-cultural

and geographical context. It aims to cut all the

flab from the enterprise and keep just the crux-

the most profitable ventures under any category

intact, so it receives maximum attention of and

resources from the enterprise.

Perhaps the most vocal advocate of the strategy

of keeping things simple and focused was the

maverick Steve Jobs: That's been one of my

mantras - focus and simplicity. Simple can be

harder than complex: You have to work hard to

get your thinking clean to make it simple. But it's

worth it in the end because once you get there,

you can move mountains.


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Made in India-Ipad: Turning a dream into reality

Adit Suneja

Medha Shanbhag

emiconductors are the building blocks ofalmost all electronic equipment today and

have revolutionized the world of electronics.

Semiconductors are used in the form of

Integrated Circuit (IC) which is a set of electronic

circuits on one small plate of semiconductor

material, normally silicon. Due to the rapid

technology advancement, ICs can be made very

compact with several billion transistors in an area

the size of a fingernail.

The Bigger Picture: Global Semiconductor

Industry

The tremendous growth witnessed by the

electronics industry in the last four decades could

be attributed to one singular factor-the increasing

power and decreasing cost of semiconductors.

True to Moores law, the semiconductor and chip

fabrication industry has made rapid

advancements improving on size year on year.

The industry has a wide ecosystem but the globalsemiconductor industry can be classified into

three broad categories:

The Fully-Integrated Firms:Companies like Intel,

IBM, Toshiba and Samsung populate the apex of

the revenue and profit pyramid. They design as

well as manufacture the chips that form the core

of the devices made by these firms. This enables

them to exercise a tighter control on quality while

guarding against commoditization of their chips

by rivals. The outcome is high returns on theinvestments made.

The Fabless Designers: Companies like

Qualcomm, Nvidia and Braodcomm differentiate

themselves solely on the basis of their designing

capability. Chips once designed are then

outsourced to specialized chip makers.

The Foundries: Companies like Taiwan

Semiconductor Manufacturing Company, the

biggest independent foundry, andGlobalFoundries are some examples which

dominate this segment through their economiesof scale. Foundries are marked by established

capacities for manufacturing a wide variety of

chips in huge quantities.

A rapid change in technology is as much a blessing

as it is a curse. Though demand tends to remain

high due to faster obsolescence of existing

devices, it spells doom for the capital intensive

chip fabrication segment of the industry.

Typically, the economic challenges faced by the

semiconductor industry on the whole can be

attributed to the confluence of two factors. The

first is the cyclicality of the industry. In the

backdrop of rising costs of R&D, it is characterized

by- a 1-2 year upturn marked by high growth

followed by longer periods of downturn.

Secondly, high costs associated with building,

upgrading and maintaining the fabrication plants

require high commitment of financial resources.

As new designs and process technologies becomeincreasingly expensive to develop, semiconductor

companies are resorting to a Fab Litestrategy

outsourcing an increasingly large fraction of their

chip production to the dedicated chip

manufacturers and the foundries. This has led to a

surge in the demand for the chip fabrication

companies.

Parts of a Whole: The Indian Context

India is a global leader in software and related

services. It also has significant presence inelectronic manufacturing, assembly and testing

industry. In terms of the semiconductor chips that

form the heart of these electronic devices, India

has expertise in some critical links of the value

chain. With more than 20,000 engineers working

on chip design and verification, India churns out

over 2,000 chip designs every year generating

about $2 bn from chip design alone. With these

impressive statistics, India has the potential to

become the powerhouse of the semiconductor

S


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industry. Then why has India not put itself on the

global map yet?

Chip fabrication plants are not that easy to set up.

They are heavy on the capital investment side of

the ledger and rapid advances in technologyrender equipment redundant and obsolete quite

soon. An advanced fab plant manufacturing chips

for cell phones can entail an initial investment of

$5 bn while that it can cost up to $1bn for a less

advanced fab unit making chips for automobile

and radio devices! The ballpark figure for the cost

of equipment itself in the plant is about 55% of

the total capital employed. Also, significant funds

need to be put in as the plant matures and the

clientele diversifies.

A fabrication plant also puts tremendous pressure

on the natural resources of the country.

Semiconductors are built in layers on silicon

wafers to build an integrated circuit. After each

layer of semiconductor is added, it must be rinsed

with Ultra Pure Water (UPW), water that is

thousand times purer than drinking water.

Creating an IC on a 30 cm wafer would require

approximately 2,200 gallons of water. Thus a large

fab plant producing, say, 20,000 wafers a month

will consume a staggering 2.4 million gallons of

water per day! Also it is an extremely energy

intensive industry given that it uses about 30-50

megawatts of peak electrical capacity which is

enough to power a small city!

Changing the Dynamics

Indias ever-increasing trade deficit was a glaring

$191 billion as of 31st

March, 13. Out of the total$491.48 bn of imports, the non-oil imports stood

at $322.23 bn constituting 66% of the total

imports. The current import bill for

semiconductors is around $7 bn and is increasing

at a rate of 22%. It is estimated to reach around

$45-70 billion by 2020.

This dependence on chip imports manifests itself

in more than one way. For the nine months

ending April 2013, India recorded imports of

electronic goods worth $26 bn approximatelyfrom countries like China and Taiwan indicating a

substantial supply chain risk. A chip fabrication

plant also promises to create over 1.2 million jobs

in addition to the economic concerns it is

expected to address.

These potential benefits have called for the

Government of India to take a closer look at the

prospects of building a robust chip manufacturing

industry in India. With this view it has offered a

subsidy of 20% on capital expenditure incurred to

companies setting up production units within

Special Economic Zones and 25% to units set up

outside these zones. The Department ofElectronics and Information Technology (DeitY)


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has also selected Accenture to review investment

proposals from companies. The government will

also provide viability-gap fundinga financial

grant to make the project commercially viablein

the form of an interest free loan for 10 years. The

government, which will get 11% equity in theproposed projects, requires the technology

providers to take at least 10% equity. The projects

will be entitled to deduction for expenditure on

research and development under the Income Tax

Act. In addition, fab facilities will also be eligible

for investment-linked deduction under Section

35AD of the Income Tax Act.

Whos heard the Call?

The Union Cabinet, in the 2

nd

week of September,announced an in-principle approval for two

international consortiums to establish Indias first

semiconductor fabrication plants.

One of the consortiums is made of Jaiprakashs

Associates (JayPee) and Israels Tower Jazz with

IBM as the technology partner. It has proposed a

plant near New Delhi at a cost of . 263 bn.

The second comprises Hindustan Semiconductor

Manufacturing Corporation (HSMC) and

Malaysias Silterra with STMicroelectronics as its

technology partner. It has proposed an

investment to the tune . 252.5 billion for a plant

in Gujarat.

Is it Enough?

It has been asserted by one of the top chip

makers that most of the leading chip

manufacturers have already established their

facilities globally. Also, companies like Freescale

Semiconductor India do not want to act on the

proposal since they established chip designers in

India that manufacture the same from their

facilities based abroad. There is overcapacity inthe existing global facilities and hence, players are

not keen on investing in India as a new

manufacturing destination.

Even the new incentives being offered by the

Government of India (GoI) do not seem to be

enough when compared with those offered by the

Chinese and the Taiwanese. The worlds largest

foundry in this industry, Taiwan Semiconductor

Manufacturing Company (TSMC), has been riding

high on government funds since 1987. Due to

such concerted efforts, China and Taiwan are two

decades ahead of India in this race.

Given this late entrant dilemma, the GoI needs to

not just provide the initial impetus in the form of

capital expenditure subsidy but also take care of

the high operating cost of such a plant. It is

imperative for the GoI to provide an ecosystem

whereby the companies do not have to worry

about essential inputs like sufficient water,uninterrupted power supply and well-developed

infrastructure.

It is a step in the right direction but the

government needs to hasten to bridge the

appalling gap in the area.


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North- East India: The New Frontier for Supply Chain ManagementChitresh Kumar

Northeast India, till date remains a bottleneck for

most of the organizations in terms of supply chain

management. The difficult terrain, lack of proper

rail-based and road based infrastructure, in

addition the social conflicts makes it an issue

which, most of the times is not discussed within

the boardrooms. The result invariably remains an

untapped market, with somewhat unknown,

unexplored potential in terms of developing

manufacturing bases or warehouses and

managing the supply chain efficiently in the

region.

However, it seems that the scenario is going to

change in the coming years, with both Indian

Railways (IR) and National Highway Authority of

India (NHAI) working towards developing

networks, integrating all the states. Since, this

integration would not be only at an interstate

level but based on the planning of Asian

Development Bank and ESCAP (Economic and

Social Commission for Asia and the Pacific) the

future integration is going to connect all the East

Asian and South-East Asian Countries through a

unified cross border network of roads and rails.

The projects named Asian Highway Project and

the Asian Rail Network will further elevate the

importance of Northeast India in the region. As of

now, the road-based Asian Highway Project

seems the one to be completed in the near

future, as issues of tough terrain, high costs, rail

gauge and technology integration mar the timely

rail network development. The following sections

of the article will discuss the technical details of

these two network development projects and the

concluding section would discuss their implication

on planning and development of an effective

supply chain by different organization so as to tap

the benefits of these projects in the best possible

manner.

Asian Highway (AH) Network Development

Project

ESCAP, the regional development arm of the

United Nations has undertaken the task of

integrating all the Asian countries through Trans

Asian road network through The Asian Highway

Project. Conceptualized way back in 1959, The

Intergovernmental Agreement was finally

proposed in November 2003 and was adopted by

32 countries in 2005. The aim is to develop some

141, 000 Kilometers of roads integrating these 32nations spread in Asia and Europe

(www.unpan.org).

Once connected the highway would allow

seamless movement of goods across the border in

a faster manner, improving trade opportunities

between these countries and economic

conditions of the region. The long-term vision of

the highway project can be touted as providing a

barrier free movement of goods and work force.

This would have major impact in the sub-regionswithin the countries from where these highways

are proposed to cross through. Further it could

be stated that the ultimate vision would be to

create a continent in the lines of Europe, where

cross-border labour, capital and consumer

markets can be exploited in an optimal manner.

The Indian part of the project consists of 11,650

kms. of which 11,624 km is national highway and

rest are stage highways. Approximately 4,000

kms. of this is class I road which means accesscontrolled, 6-8 lane divided carriageway adhering

to international safety regulations (Mostly parts

of Golden Quadrilateral Project). However,

according to Ministry of Transport and Shipping

most of the Indian roads adhere to the minimum

standard prescribed by AH1. The roads that will

1Development and Upgradation of Asian Highways Network in India,Investment Needs And Status On Road Safety, Presentation given by Shri

S.B. Basu, Ministry of Shipping, Road Transport & Highways, Government ofIndia


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cross India of the network are AH -1, 2, 42, 43, 45,

46 and 47. These networks will connect, Pakistan

(AH -1), Bangladesh (AH 1 and 2, at three points

and from two states West Bengal - 2 Entry and

exit points, Assam One entry-exit point), Nepal

(AH-1 and 42), Sri Lanka (AH 43 and 46), Bhutan(AH48) and Myanmar (AH1 and 2) (see Fig. 1).

Fig. 1Asian Highway NetworkIndia

Source: www.en.wikipedia.org

The overall cost of the project is proposed at 26

Billion Dollars out of which as of now only 18

Billion Dollars have been committed. However,

considering that the Indian network is part of

National Highway Development Programme(NHDP) and development of roads in Northeast

India is being taken separately as NHDP IIIA and

IIIB programmes, there is an overall surplus of

funds, which is a good news (approximately 2

Billion Dollars).

North East Rail Infrastructure Development

Project

The project Intends towards integration of all

northeast states through railways (broad gaugeand medium gauge) at an expected total cost of .

17,000 crores and would develop 2452 kms. of

track, half of which would be broad gauge and

half medium gauge. According to the Ministry of

Railways, the total spend on the same till 2010

has been around . 5684 crores and

approximately 1,800 kms. of tracks have already

been laid2. Once completed all the seven state

capitals would be accessed through the network

2Master Plan for the Development of Rail Infrastructure in the North East

Region, Presented on 7.7.2010, Ministry of Railways, Government of India

(Fig. 2) reducing the travel time as well as cost

significantly. The way forward for the future

would be cross border connectivity towards

Bangladesh and South-east Asian Countries from

Myanmar upto Malaysia as part of Asian Railways.

Fig. 2 Development of Rail Infrastructure in

North East India

Source: Master Plan for the Development of Rail Infrastructure in

the North East Region (2010)

Implications for Firm Level Supply Chain

Management

Analysis done by Parpiev and Sodikov (2008) 3

suggests that a 20 percent increase in intra-region

trade would result towards increase of 48.7 Billion

Dollars and a 35% increase would result towards

89.5 Billion Dollars annually. However, a very

small part (Less than 15%) of this trade would

have Indian share (See figure 3). The major reason

behind such a phenomenon would be amount of

trade between India-China, India Bangladesh

and IndiaMyanmar remains miniscule in nature

as compared to trade between East Asian

countries or North Asia and East Europe, China

and Russia. This would result towards anunderutilized network as far as international trade

is concerned in the Indian Sub-region. This excess

capacity can be utilized for the intra-sub region

trade in the Northeast. However, this is not going

to be one of the major advantages to be exploited

by various organisations.

3Parpiev Z. and Sodikov J., (2008), The Effect of Road Upgrading to

Overland Trade in Asian Highway Network, Eurasian Journal of Businessand Economics Vol. 1, Issue 2, pp. 85-101


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Figure 3: Intra-region TradeAsian Highway

Network

Source: Parpiev and Sodikov, (2008)

Once developed, the two networks together

would provide a unique opportunity of developing

low cost supply chain in the northeast region. The

access to Assam and Northeast India from East

India, through Bangladesh (AH -2, See fig. 1)

would significantly reduce the lead-time. This

means further easy access to raw materials from

the mineral belts of east and southeast India from

states like Orissa, Jharkhand, Chhattisgarh andAndhra Pradesh.

For the manufacturing base in the Northeast India

and the international inbound and outbound

(import and export) supply chain management,

this would open an altogether new avenue

through utilization of Chittagong port of

Bangladesh, rather than coming all the way to

India. Additionally, the opening up of AH and

access to northeast (Assam and Tripura) via

Bangladesh from south West Bengal would allow

better exploitation of Indian East Coast Ports like

Haldia (West Bengal) and Paradeep (Orrisa).

However, in order to exploit the benefits of theseroad and rail based network, the firms need to

study the ph

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